CEO says Life360 proves investors can get both value AND growth after +42% share price surge
Ever wondered what your teenagers up to? Are they where they’re supposed to be? How are they going driving on their P-plates? Are they sticking to the speed limit?
Silicon Valley based Life360 (ASX:360) is a family safety app that provides real-time location tracking, communication tools and various safety features.
It enables families to be informed about each other’s whereabouts, offering enhanced safety through features including geofencing and safety checks.
The app also promotes driving safety by analysing behaviours such as speed. It is the perfect tool for over-protective, worry-prone parents.
But it’s not without its controversies with talk the app was the inspiration for the Netflix Black Mirror series episode called Arkangel, where a mother obsessively watches her daughter, and concerns it could be used in a sinister way by those wanting to track every movement of people.
360 listed on the ASX on May 10, 2019, when executives of the local bourse were sweet-talking global tech companies on the merits of the ASX as a smaller NASDAQ.
Companies were being enticed to the ASX, where they could learn what is involved in being a public company before a dual US listing.
Early investor in the company James Synge, who is now a partner of Australian VC firm Carthona Capital, was also keen to see the company list in Australia and was a keen supporter of founder and CEO Chris Hulls.
“I believed in Chris, his vision and the business he was building and that it would play well with Australian technology investors, so was a strong supporter of an ASX listing for Life360,” Synge told Stockhead.
A strong quarterly earnings announcement on May 16 saw its share price rise more than 11% on the day. 360 achieved positive adjusted EBITDA of US$500k, one quarter ahead of expectations.
Other key highlights of Q1 23 include:
After a bumpy ride amid a global tech investment downturn as central banks moved to put the inflation genie firmly back in the bottle by rising interest rates, the 360 share price is marching upward.
360’s peak was $13.65 in November, 2021 and its low point $2.57 in June, 2022 and now the share price is $6.85.
The company’s share price is up 42% in the past month and 80% for a one year period with a market cap of $1.4 billion.
Speaking to Stockhead from 360’s San Francisco base, Hulls said Covid-19 lockdowns disrupted the use case for the platform.
However, through word of mouth they continued to grow organically but at a lower level throughout the period.
“We’ve been all over the place and Covid really hit us hard because during Covid all the reason to use the product went away,” he said.
Hulls said he sees 360 as in-between being a value and growth stock and is very confident in its future prospects.
“We are in-between in that we are growing very quickly but we are able to do so with very disciplined spend, so growth at a reasonable cost,” he said.
“A lot of tech companies have historically been burning so much cash but we are fortunate to not be one of them.”
360 now has an active user base of more than 50 million, primarily in the US.
“According to Data AI we’re one of the 20th actively most used apps in the country and that’s inclusive of even the giants,” Hulls said.
“This year we’re guiding to our core subscriptions growing 50% YoY and we’re growing our international base so we will have our full feature set out in the UK… it will be the first year we are launching in a major new market outside of North America.
“In Australia it is a very stripped down version of the product versus the US because most of the premium features are US only.”
He said it was a just a matter of time before premium features of the app were introduced to markets like Australia.
“If the market were rewarding growth like it was then we probably would spend more, hire more people and forward invest a little bit more but we don’t have to, so we are being more prudent and slightly adapting our strategy to fit with the times.”
An original developer of the location app, 360 was founded back around 2008.
“We were very early to market and people didn’t understand the power of location when we first launched,” Hulls said.
“In terms of dedicated location and family sharing business we are now very dominant.”
Hulls said as interest rates have risen and consequently the costs of capital, hard-hit tech companies are having to reconsider how they do business.
“There are two competing things and the downside is I liked it when we could push really hard on growth and investors wanted that to happen and obviously for companies like us it meant there was more access to capital and more willingness for investors to invest,” he said.
“The good side of things though is we were competing for talent with companies with unlimited cash even without the good fundamentals and we’re finally in a world where we are in a better position to hire the right people, run more leanly in a way that impacts us so much less than most businesses.”
Hulls said Life360 has always been somewhat prudent as a tech company, which served it well during 2022, while many had what felt like unsustainable cost structures.
“Companies like us who always made sure to grow appropriately for their size will be rewarded now in ways they weren’t when money was essentially free,” he said.
The company has pulled back on staff by about 14% including merging management teams from recent acquisitions. He said more sustainable costs for staffing in recent times and a shift from the Disneyland mentality of Silicon Valley has also been of benefit.
“Some of that was natural attrition, we were able to push higher on performance standards,” he said.
“A lot of the jokes about Silicon Valley being like summer camp and Disneyland, there is some truth to that and it was a very employee favoured environment.
“I don’t fault the employees at all for that, we are capitalists and if you can get a chilled life and paid a tonne I don’t blame anybody.”
He said not that tech companies now want to “drive a sweat shop” but there is a return to people working in the sector because they are passionate and ambitious, not merely for the money.
Hulls said he believes technology is on an exponential curve and he’s a believer in the artificial intelligence (AI) revolution.
“I think people are going to be far more productive and AI will change the world in ways we don’t even understand,” he said.
“It will increase economic growth that people will capture, so in that sense I’m very much a die-hard Silicon Valley CEO.”
He said every time there’s a big platform shift, it creates opportunities, but it can also be very destructive to people who can’t adapt.
“When mobile became a platform it was not clear it was going to be almost as big as the internet itself and companies like Facebook did extremely well adapting to mobile,” he said.
“But even mobile companies like Blackberry just died and they should’ve had the App Store but didn’t.
“So I think a similar thing will happen and it will be a bit of a bloodbath for some people but huge opportunities for others.”
Hulls believes Life360 is less impacted in either direction by the emergence of AI.
“What we’re doing is tied to what people are doing in the physical world,” he said.
Hulls believes Life360 is a good example of the merging between two investing styles – growth and value. While value stocks are undervalued shares of established companies, favoured by investors looking for bargains, growth stocks are shares of companies with high growth potential, sought after by investors expecting substantial future earnings growth.
He said Life360 has always had a fair valuation and grows organically. He said in this tech downturn there will be companies like his that are growing healthily in cost-efficient ways.
And he has tips for investors looking for both growth and value.
“Look for companies that have positive unit economics, good organic growth, are not reliant on other tech startups to sell to and are more general consumer steady state businesses – and we are firmly in that category,” he said.
“If they are burning capital I would look at companies where the ratio of their EBITDA loss to revenue is decreasing and modest because you have some companies as part of this bubble that might be spending 100 times their revenue on the expense line versus us on 1.5 our revenue and now zero.
“I think those are the signs and it was just kind of batty what was happening with valuations for certain companies.”